Plan for ‘green bank’ seen as not practical

-The Star- But some observers say this is viable if jointly done with other expert countries

PETALING JAYA: The proposal to set up a dedicated special-purpose bank in Malaysia to fund clean-energy industries is not practical at this juncture due to the complexities of such ventures, according to some industry observers.

However, they believe its establishment would be more viable if carried out on a collaborative basis with other countries who have expertise in this area.

At the 6th World Islamic Economic Forum last month, Prime Minister Datuk Seri Najib Tun Razak has proposed the setting up of a Clean Energy Development Bank to boost eco-sustainable efforts by developing countries of the Organisation of the Islamic Conference.

Najib added that Malaysia was ready to spearhead the initiative, which would help accelerate the development of clean energy-related industries.

»The inability to function as a commercially viable entity will, in turn, impact the longterm survivability of such institution« ANANDAKUMAR JEGARASASINGAM

Malaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings Anandakumar Jegarasasingam said the strong public policy mandate of such an institution would make it challenging to function as a commercially viable entity.

“The inability to function as a commercially viable entity will, in turn, impact the long-term survivability of such institution,” he said.

Anandakumar said there were several practical issues that needed to be resolved before such a bank could be set up in Malaysia.

He, however, felt an inter-governmental initiative among a group of nations where financial resources and expertise could be pooled was a better option.

Anandakumar said one of the issues for the setting up of a “green bank” in Malaysia was whether the bank should operate on a commercial or public policy mandate.

A bank operating on a commercial basis may not be attractive for potential borrowers, while a bank operating on a public policy basis may face funding constraints should it be dependent on market funding.

In addition, he said, such an institution that funded new and experimental technology would need to have very high standards of corporate governance to ensure its credit origination and risk management standards were adequately robust.

An industry observer concurred, adding that apart from high standards of corporate governance, funding would also be an issue in terms of sourcing for funds.

“Will it be from the public sector or private funding or from external sources?,” the observer asked.

Anandakumar said it would be challenging for the new bank (especially if it is Malaysia-focused) to acquire the appropriate credit-risk expertise to evaluate green technology projects.

He believes a more practical way to encourage green energy-related industries in Malaysia would be to set up a clean-energy fund that could be funded by the Government and administered by an existing government-controlled bank.

Alliance Bank Malaysia Bhd executive vice-president and head of corporate strategy and business planning, Tim Daniels, said the Government’s move to spearhead the development of such a bank was timely and forward-thinking.

He said it was in tandem with the increasing global interest and urgency in environmental conservation and management to achieve sustainability of the country’s eco-system and natural resources.

As such, Daniels said, Malaysia’s environmental agenda that was recently tabled under the 10th Malaysia Plan had laid out specific plans to protect the environment while harnessing economic value from the process.

According to the Plan, he said, the Government was taking steps to introduce a comprehensive eco-system for environmental sustainability through the AFFIRM (awareness, faculty, finance, infrastructure, research and marketing) framework.

“As the Government is now targeting rapid development to achieve the national agenda of becoming high-income nation, it is more critical now than ever to ensure that sustainability is a theme that is emphasised right from the onset of these plans.

“The Green Bank concept hence dovetails nicely, playing an important role in the financing aspect of the roadmap for climate-resilient growth as well as to ensure conservation of the nation’s ecological assets,’’ he noted.

Daniels said Alliance Bank realised that financial institutions had a significant secondary impact on the environment via the types of projects and business strategies that they supported.

To date, he said, the bank had an informal policy of assessing the environmental and social impacts of potential lending opportunities which were conducted as a part of its regular review of risks.